An idea to help fix Social Security

[Tony_FLADEM]

What do you think about this?

Allow people who get tax refunds from the government to put a portion of that into an existing retirement account. Those who do this would pay reduced payroll taxes the following year based on the portion of their refund they put into there account.

The earnings would be tax free and those who participated would get other incentives like being able to retire earlier and perhaps not paying payroll taxes once these accounts meet a certain level and the person reaches a certain age (57 for example).

In return, the retirement age could be raised and the indexing of SS benefits could be changed to save money. In addition, I would raise the cap at which payroll taxes are deducted to $200,000


In this way low income individual would benefit the most, and the transition costs would not be as great because you are taking existing funds to help create these accounts.

This is different than Bush's plan because higher income individuals would still be paying into the system. Those who are the most vulnerable in retirement age would still have their SS benefits and the cost would not be as great.


Tony

[oldtime dfl_er]

1. first of all, SS isn't "broken"

and second, people can do this anyway. It's called an IRA. or a ROTH IRA. Or the stock market. Whatever.

I do think you are absolutely correct that the "cap" should be raised. People who earn huge sums of money do still get their social security, it's an entitlement. so raising the cap is an excellent idea.

www.cafepress.com/showtheworld

[REACTIVATED IN CT]

3. Raising the wage cap...

makes sense to me. They did it for Medicare a few years back.

My local paper says the chimp is not ruling it out but won't raise the rate from the current 6.2%. Geez, even if the rate over $90k was something lower, it would help.

[mopinko]

2. or just make voluntary contributions

pre-tax, voluntary, up to the max, so that low wage workers could still get the max payment when they collect.
you could offer incentives to employers to match contributions. the feds could also match, if they chose.
this is not the same as an ira- social security is FAR FAR more than just a retirement fund. at most it is comparable to an inheritable annuity plus disability insurance. nothing like an ira that is in a mutual fund, or any other simple investment instrument.
i'm not getting into that cap shit except to say that this is a simple minded position that chaps my ass.

[Warpy]

4. It's not broken, and it's a stupid idea

Tax refunds are usually a necessary windfall for most people of modest means, and are applied to such frivolities as past due bills and kids' school clothing.

Reducing the amount of payments to FICA to favor individual "investment" is a stupid idea. You don't fix a system you claim is underfunded by defunding it some more.

The way to "fix" it is to raise that laughably low earnings cap, to raise the minimum wage, to end offshoring, and to get Congress's greedy paws off the overpayments, so that they can't be used to disguise what a disaster tax cuts to the rich have been to the treasury.

The only reason there is a potential (not actual) problem is because the rich are getting a free ride. It's time to make them cough up again to support the system from which they derive so much benefit.

[mopinko]

12. this is just a stupid statement

"The only reason there is a potential (not actual) problem is because the rich are getting a free ride. It's time to make them cough up again to support the system from which they derive so much benefit."

what are you talking about? what "so much benefit"? there is a max of $1,400 a month (or so, not sure of th exact figure) and that is the most anyone gets. the purpose of the cap is so exactly this thing does not happen. no rich person is getting any more out of the system, less in fact, per dollar that they invested than an upper middle class person who hit the cap.
if people do succeed in doing away with the cap, this is the thin edge of the wedge that will eventually destroy it. a lot of lefties don't seems to understand that most people do not want a handout. they want to pay their own way. that is what social security is about. dignity. turn it into welfare, and you take away the dignity of every proud former worker, widow, or survivor who gets that check.

spend government money wisely. grow the economy. don't run up huge deficits. the "crisis" will take care of itself. put down the koolaid.

[mulethree]

14. Wrong

See post #13

It is partly welfare for the lowest earners, and it costs the highest contributors around $5000 per year. The people who earn the $87K cap pay in $5000/year more than they will get back.

The people who make $100k, $300K, $5,000K - they all (assuming they have some payroll to pay payroll taxes on) also pay $5,000 more than they get back. While $5K is a 6% tax to the guy making $87K, it's a 1/10% tax to the guy making $5,000K. This is money paid in to support the poor elderly. How is it a 6% obligation to one person and a 1/10% obligation to another?

I would say keep the 12.3% tax, But flatten out the input/output curve. Cap it at a benefit of say 2X the poverty level (income of $60K). Then put a progressive tax on incomes over the cap to raise the funds to subsidize the benefits of the lowest earners.

People in the $25-60K range get back what they put in. People under $25K get back more - so they won't starve, and people over $60K put in the extra to make up the under-25K difference. But you don't have a regressive tax that peaks for the 'just-over-cap' earners and peters out as you get wealther - but a progressive tax where those who can more afford it - pay a larger share.

Then you would have the $87K guy and the $5,000K guy both paying $7380 on the first 60K of income - and getting that back in benefits eventually. The $87K guy pays an additional - say 1.5% tax on the $27K he made over the cap - ($400) and the $5,000K guy pays a 4% tax (progressive) on the $4940K he made over the cap ($197,600). Adjust the over-cap progressive tax rate til the system is fixed.

Poor billionaires gonna have to pay 19% on their stock market winnings instead of 15%. Boo Hoo.

[mopinko]

15. $5000 is $5000

the $1400 payout is a $1400 payout.

your plan makes it a welfare program based on need and ability to pay. to proud workers, who do not want a handout, it matters. progressivity is fine for taxes. it is not fine for payments on an annuity.

you don't understand the philosophy and purpose of the program. you are distorting it. this will lead to its destruction. it will turn retirees and widows into moochers with their hands out, instead of self reliant earners.

[mulethree]

17. You're ignoring the fact that it already is

progressive in its payouts. The low earners do get more than they put in and the difference is subsidized on a need basis - hence a form of welfare.

The higher earners are getting less back than they paid in and the difference is used to subsidize the low earners - on an ability to pay basis. Only those making around $27K can expect to get back an amount close to what they paid in.

So it is progressive and it includes welfare. It just stops at 87K. It is the lower-middle class subsidizing the retirement of the lower class. Why should those earning $28K to $87K pay a progressively higher percent of subsidy but reverse the progressivity at $88K?

[vpigrad]

5. The problem with raising the cap...

is that it doesn't fix the problem. There just aren't that many people that make those huge amounts of money. The cap is currently at $90,000. According to one estimate from someone I trust, raising the cap to $150,000 would only cover 28% of the short-fall. Yes, raising the cap is a part of the solution, but it's not the solution.

The real solution is to raise the rate based upon income. In other words, make it progressive. Currently we pay only 12.4% of our income to SS. That's just wrong. It should be higher because of all of the good it does. If we raise rates to 25% for the rich and drop it to 8% for the poor, we'll end-up with something that will pay for itself and be more fair.

[Warpy]

6. Eliminating the cap

effectively raises the rate from the current 12% to about 14% at the present cap.

We are talking about a huge amount of money here.

Yes, it's part of the fix.

Your progressive rate idea would be good, but they'd never go for it since they wouldn't derive a commensurate benefit from the program. It's meant to be a flat insurance premium. The rich exempted their own income, expecting it to fail quickly. It's been a success without them for 70 years. It's time to make them pay their premiums like the rest of us.

Besides, they've always said they wanted a flat tax with no exemptions. Let's give them one and wait for the screams.

[tcoursen]

8. rich people

But isn't it true that the ultra rich,the ones making > 200K for the most part are NOT getting their income from payroll?

Somebody like Teresa Heinz Kerry. Ultra-rich, but how much of her income comes from sources that would require her to pay social security? How much of a salary does Bill Gates pay himself? Are the discustingly obsense amounts of stock options that CEO's get the kind of income that pays Social Security tax?

I think that the cap should be eliminated, but I don't think it would make that much of a differance. And while it is nice to zonk the people that make > 200K, it would hurt the people that in the range just over the existing cap, and where I live that is a lot of people. Somebody making like 95K would get hit with another 300 dollars in taxes, is that really going to make a differance to the system?

[China_cat]

7. The very best answer to the SS 'problem'

is to stop sending our jobs to other countries.

Keep the jobs here, make it a REAL recovery instead of this so-called 'jobless' recovery and the increase in people working will take care of the (non)problem.

[mulethree]

9. why base it on tax refund?

If you're getting a tax refund of any substantial size it just means your boss is withholding too much tax from your paycheck. Talk to the bookkeeper and have an extra exemption put on your W2 so they will withhold fewer taxes. Any such plan should not treat refunded taxes any differently from your other income, the only thing special about a refund is that you gave the government a free loan.

When you file your tax return, look for the option to have your tax refund directly deposited in your bank, then use the account number of your IRA account instead of your checking account. Boom the refund is automatically put into tax-deferred retirement account.

Giving a tax deduction benefits whom? The guy paying a 10% tax rate? or the guy paying a 38% tax rate? Thats little incentive for the 10% guy who can least afford it and a huge incentive to the 38% guy who gets a huge break but doesn't need it.

Raising the retirement age is a benefit cut, people can already use their IRA during the first years of their retirement to avoid filing for early retirement under SSA. As a result they then get higher SSA benefits for waiting until their later 'normal' retirement age.

Raising the cap is a tax increase, but since you will presumably have to pay benefits on those increased contributions - how does it help the finances? It does, because the payments above $60K get you less benefits than the payments below $30K do. You end up increasing the tax load on those between 90K and 200K income who end up paying more taxes than any others.

Is the answer to double the FICA that a $174K/year worker makes? Or perhaps to increase the SSA tax that a $1mm/year investor pays from 1% to some higher number? The $174K guy is already paying over 35% in federal taxes (income, payroll etc) while the $1mm investor is paying around 25% (dividend, capital gains, AMT etc)

[r3dhawk]

11. problem with raising the minimum wage

and "growing" our way out, is that benefits are tied directly to wages. the more you paid in, the more in benefits you get paid out.

[mulethree]

13. not quite

If you make minimum wage - say $10,000 a year then you've paid $1230 a year in SS Taxes and get a benefit of about $6000 per year. 60% of your pre-retirement earnings and 4.87X your yearly SS tax. If you pay in at this rate for 40 years you will pay in $49.2K and if you collect for 11 years (78yr life expectancy - 67yr full retirement age) then you will collect $66K in benefits. You get back 134% of what you paid in, a 34% return on your investment.

$ 10K $ 1230 $ 6000 60% 487% $ 49.2K $ 66.0K 34.1%
$ 15K $ 1845 $ 7500 50% 406% $ 73.8K $ 82.5K 11.8%
$ 20K $ 2460 $ 8550 42% 347% $ 98.4K $ 94.0K 04.5-%
$ 30K $ 3690 $10700 36% 280% $147.6K $117.7K 20.3-%
$ 45K $ 5535 $13900 31% 251% $221.4K $152.9K 30.9-%
$ 60K $ 7380 $17000 28% 230% $295.2K $187.0K 36.6-%
$ 87K $10700 $20500 24% 191% $428.0K $225.5K 47.3-%

(numbers from the SSA Quick benefits calculator http://www.ssa.gov/OACT/quickcalc/index.html )

So low wage earners take out more than they put in. High wage earners put in a lot more than they take out. The excess paid by the high earners subsidizes the excess paid to the low wage earners.

If you raised the minimum wage 50%, so that many people who make $10K were instead to make $15K : then those people would need only $8.7K in subsidy (82.5 - 73.8) instead of the $16.8K subsidy (66 - 49.2) needed at $10K wages saving $8.1K per.

When you hear that the SS program is progressive - this is what they mean. Lower income participants get a lot more for their dollar than higher income participants do. If you consider it an investment, then it's a really bad one for the higher earning contributers who loose a lot of money on the deal.

This is one of the basis of privatization. If a $87K contributor could invest 1/3 of his contribution and earn 0% over inflation, then he would be much better off than earning the -47% return he gets from the regular system. The low wage earner would be much worse off with a private investment than the 34% return he gets from the current SSA system.

So it is welfare for those with very low earnings, and a very bad deal for those with high earnings. Raising the income - and FICA contributions along with it - of the lowest earners, closer to the break-even point - would do a lot to fix the systems finances.

The other problem is that the $27K - $87K contributers are paying the full cost of subsidizing the under-27K earners. Consider it a social obligation to keep old people from starving, and these guys are paying a huge social burden while the $1mm and $10mm people pay a pittance.

[sam sarrha]

10. a livable wage would raise input & repealing tax cuts to the richest 2%

who possess more wealth than the poorest 4,000,000,000 in the world,would raise payments, my mother worked all her life and gets $681 a month and about 180 of that was her raise to what father made before he died.. she has to pay over $250 for insurance and about 1/2 of the rest goes to medicine. she lilves with us and we keep losing jobs to China and have to move across the country to get a new one and lose that one 8 months later.. together we lost 4 jobs in 3 years to outsourcing... and i lost the last one because my Bible Banging boss discovered i was Buddhist.. heresay from another employee.

[cattleman22]

16. Why only on interest free loans to the government?

Income tax rebates are simply interest free loans that people gave the government because they miscalculated their withholding. Why would you choose those as the basis for retirement account funding?